To: Dollar General Management
From: Jena Marini
Re: Dollar General Case Memo
Dollar General is the dollar store’s industry leader and has been a fast growing retail channel in the United States for the past decade. Since under new management in 2003, when David Perdue became the chairman and CEO, Dollar General has a bright future to look forward to. Dollar General has grown from 6,273 stores to 8,260 in 2007 and revenues had increased to $9.2 billion by the end of 2006. (Page 1) However, because of the fast growth David Perdue has some major structural decisions to make to keep Dollar General growing and profitable in the long run. David divided Dollar General’s growth options into three categories. The first growth option is through demography, which is to pursue more urban consumers and affluent customers. The second growth option is through geography, which would be to expand into Western U.S. and internationally while also increasing U.S. presence and industry roll-up. The last option for growth is product growth, which is to change the product mix, add-in store services and new store concepts.
In 2007, Dollar General was the sixth-largest mass retailer in the United States. (Page 2) They were one of three companies that outperformed Wal-Mart both in sales and profit growth. (Page 2) However, in 2006 Dollar General had to face some structural problems that were hindering their growth. The company closed over 200 low-potential stores and had to write-off a significant amount of old inventory that had built up over time. The main question that the chairman and CEO, David Perdue highlighted was “Should we continue to drive growth through new store openings?...Or should we focus more on our existing stores and look to drive growth through merchandising and in-store operational improvements?” (Page 2) Perdue wants to continue the growth of Dollar General in the retailing industry but also wants to avoid getting marginalized like dollar stores of the past. In this case memo you will find an analysis of the external environment and the internal conditions of Dollar General’s current position. Also, you will find Dollar General’s options for future growth and the recommendations for which option they should choose. Lastly, you will find the suggestions for the implementing Dollar Generals recommendations.
A PEST analysis will help highlight Dollar General’s external environment. PEST stands for political, economic, social and technological factors. Dollar General did not have any political factors that were necessarily affecting their growth. However, they do have one main economic factor that may influence them positively in the future. DG serves primarily low, middle and fixed income families in 35 states across the United States. In 2006, 41% of Dollar General’s customers had a gross income of less than $30,000/year and 24% had a gross income of less than $20,000/year. (Page 2) The number of American households living under the poverty line has increased 12% from 2000-2005. (Page 4) The implication for this is that Dollar General’s target market is expanding and more people are forced by the economic conditions in the U.S. to shop cheaper. For the social factor American consumers now have a new mentality to shop based on bargains. Over the past couple decades retailers such as Wal-mart, Target and Costco have created a cultural shift that made consumers want to shop cheaper. In 2005, 67% of Americans shopped at a dollar store, which was more than the 55% in 2000. (Page 4) The implication for the social factor is that Dollar General has great potential when it comes to the buying behaviors of the consumers in the United States. The technological factor for Dollar General is that they have upgraded their computer systems in every store. In two years DG had changed their inventory system to a new electronic point-of-sale (POS) system. The